Exam 14: Mergers, Acquisitions, and the Valuation of Shares

When Tuscarora Transport was purchased by Domus Logistics Inc., Domus was able to reduce costs by using the larger customer base to ensure trucks filled to capacity on the routes, to increase utilization of salaried maintenance personnel in outlying regions to 80% from 60% and to more broadly allocate the costs of telecommunications hardware and administration. What is the term for these types of benefits to Domus of the Tuscarora acquisition?

What type of merger occurs when a company eliminates a competitor by buying it?

Assiniboine Mills, incorporated ten years ago, shows on its year-end balance sheet net total assets of $30 million, current liabilities of $5 million, long term liabilities of $13 million and paid-in capital from common shares of $12 million at $15.00 each, now selling for $19.50. Of the assets, net realizable value of current assets and liabilities is 90% of book values, $9 million and $5 million, respectively. Land with a book value of $5 million, has appreciated steadily, averaging a 6% increase year-over-year. Building and equipment can be sold at net book value. Assiniboine issued 15-year bonds five years ago at par with an annual coupon rate of 6% and a face value of $12 million. Current interest rates are at 8%.What is the liquidation value per common share?

What is the Balance Sheet Method of business valuation most useful in determining?

What is a disadvantage associated with replacement cost method of business valuation?

Sagrium Ltd. tried for two years to acquire all the shares of Hunter Inc., upping the share price offer by 10% three different times. Hunter shareholders were not convinced and ere justified in not accepting Sagrium's offer when the price of Hunter's shares rose above the former's highest bid offer. As Sagrium prepared a fourth offer, Hunter finally lashed out and made a counter-offer to buy Sagrium. What is this takeover defence known as?

Open Ltd. is listed on the TSX, has a price-earnings ratio 20, earned $6 million in the year just ended, and has 4 million common shares outstanding. Closed Inc. is similar in many respects, but is not listed on any stock exchange and its shares are considered less marketable. What value might analysts put on Closed Ltd.'s shares?

Haliburton Galleries Ltd. (HGL) is a small, but well established, fine art store. Unlisted and closely held, the company has 2,500 shares outstanding at an issue price of $350 and uses EVA for rewarding performance. The Board of Directors would like to determine the current value of the company's shares as a guide to projecting the potential cash flow from a planned share issue. Year-end adjusted EBIT after tax equals $850,000, adjusted net assets equal $2.6 million, market value of debt is $900,000, retained earnings equal $940,000 and the company's cost of capital is 14%. What is the value of a share in HGL?

Reid Fittings and Fixtures Ltd. has forecasted free cash flows of $9.8 million, $10.2 million, $11.0 million, $11.4 million and $12.6 million over the next five years. Market value of bonds is $4.8 million and current value of the mortgage is $1.2 million. Reid has four million common shares outstanding and a discount rate of 7%. Using terminal value with a growth factor of 4% to account for cash flows beyond the planning horizon, what is the value of a Reid Fittings and Fixtures share?

Craylon Corporation has net income after tax of $4.5 million, cash of $0.5 million, current liabilities of $3.4 million, debt of $6.8 million, retained earnings of $1.5 million, book value for its 5 million common shares of $30 million and a current price/earnings multiple of 18. It is considering the purchase of Dahlia Ltd. whose shares trade at $32.00 and at price/earnings multiple of 24. Craylon plans to offer two of its own shares for one of Dahlia's. What is the disadvantage to this offer?

Halifax Hatcheries Inc., an unlisted company, operates in the same sector, has common operational characteristics, and the same dividend payout policy, as Saleem Fingerlings Ltd. Saleem's payout ratio is 32%. Salem's year-end earnings were $12,150,000, at which time shares were priced at $10.80 per share with 2.4 million common shares outstanding. Using the dividend yield ratio method, what would be a reasonable estimation of the value of one Halifax Hatcheries Inc.'s common share if it has 1.5 million shares and earnings of $172,500,000?

To avoid the situation where a localized economic downturn eliminates the income of the company, which type of diversification should a company practice?

Granastein Grocers purchased Ridgway Food Warehousing and Logistics Inc. What is this type of merger?

An unlisted company has sales revenue of $456 million and 2 million common shares outstanding. Another company with similar characteristics, sales of $360 million and five million shares, trades on the Toronto Stock exchange for $12.50. Using the information from the question in an appropriate ratio, what is the share price of the unlisted company?

Sask Potash Inc., a fertilizer producing company, was recently the recipient of a takeover offer from Australia's BHH Mining Ltd. Sask Potash fought back saying the bid significantly undervalued their shares and they urged shareholders not to tender their shares and the government to block the bid. What type of market efficiency does Sask's board of directors believe in and why might the government not allow the takeover to go forward?

Victorian Antiques Ltd. has a price/earnings ratio of 22 and is selling for $32.00 a share. Smith and Sons is a family held business not traded on the stock exchange. Which of the following characteristics of Victorian Antiques must be identical to Smith and Sons to allow a comparison with Victorian Antiques to determine the valuation of the unlisted company?

Beryl Personnel Ltd. has a similar organizational structure, client base and growth as does Excel Temporary Services Inc. Both were established within six months of each other approximately five years ago. Book value for Beryl Personnel's 500,000 common shares is $750,000. The company's market capitalization is $2.25 million. Book value for Excel Temporary Services Inc.'s 100,000 shares is $600,000. Using the data provided and an appropriate ratio, what would Excel's market capitalization be?

What is the business strategy involving a defensive tactic against a hostile takeover where severance packages involving enormous sums are approved by the Board of Directors to be paid to senior managers in the event of dismissal because of a takeover known as?

Body Guards Ltd.'s (BG) balance sheets showed total assets of $100 million and total liabilites of $42 million. Fair values of assets and liabilities were equal to their book values except for a ten year old building whose appraised value was $5 million higher than book. BG has 10 million shares outstanding. BG earned $2.00 per share and paid a dividend of $0.50. Dividends grow at 6% per year. BG enjoys a P/E multiple of 5. BG's cost of capital is 12%. What is the value of a share using the balance sheet method, the liquidation method, the P/E ratio method, and the dividend growth method respectively?

What does the term "merger" indicate?